When Does Refinancing Make Sense?
Refinancing means breaking your current mortgage contract and replacing it with a new one — usually at a lower rate, for a higher amount, or both. Before you do, you need to know your break-even point: the time it takes for your rate savings to outweigh the penalty.
Refinancing typically makes sense when:
- You can save 0.50% or more on your rate and have enough term remaining to recoup the penalty
- You need to access home equity for renovations, investments, or major expenses
- You want to consolidate high-interest debt into your mortgage at a much lower rate
- Your financial situation has changed and you need to adjust your amortization or payment frequency
- You want to add or remove a person from the mortgage (e.g., separation)
Refinance Calculator
Enter your current rate and remaining balance to calculate your break-even timeline.
Understanding the Prepayment Penalty
Breaking a mortgage early triggers a prepayment penalty. The type of mortgage determines how it's calculated:
| Mortgage Type | Penalty Calculation | Typical Range |
|---|---|---|
| Variable rate | 3 months' interest | $2,000 – $8,000 |
| Fixed rate — monoline lender | Greater of: 3 months' interest or IRD | $3,000 – $15,000 |
| Fixed rate — Big 6 bank | Greater of: 3 months' interest or IRD (often uses posted rate IRD) | $8,000 – $35,000+ |
Big bank IRD warning: Canada's Big 6 banks calculate the Interest Rate Differential using their posted rates (not discounted rates), which can make penalties 3–5× higher than those at monoline lenders. This is a major reason brokers often place clients with monolines.
Accessing Home Equity
If your home has appreciated in value, you may have significant equity available. You can access up to 80% of your appraised value through a refinance.
Example:
Home value: $900,000
Maximum new mortgage (80%): $720,000
Current mortgage balance: $450,000
Available equity: $270,000
Common uses for equity access:
- Home renovations — kitchen, addition, income suite
- Investment property down payment — leverage equity to build a portfolio
- RRSP/TFSA/FHSA top-up — invest equity in tax-advantaged accounts
- Education or business funding — mortgage rates are typically the lowest available
Debt Consolidation Refinance
Rolling high-interest debt (credit cards at 19–24%, personal loans at 8–15%) into your mortgage at 4–5% can dramatically reduce your monthly obligations and total interest paid.
Consolidation example:
Credit card debt ($20,000 @ 19.99%): ~$333/month interest
Car loan ($30,000 @ 7.9%): ~$590/month payment
After consolidation into mortgage @ 4.79%: ~$260/month added to payment
Monthly cash flow improvement: ~$663/month
Note: extending the repayment of consumer debt over a 25-year amortization means you pay more total interest, even at a lower rate. Use an accelerated payment strategy to avoid this — your broker can model the right approach.
The Refinancing Process
A typical Ontario refinance takes 3–4 weeks:
Why Use a Broker for Refinancing
A broker is especially valuable for refinancing because the math is complex. They'll calculate your exact penalty, compare it to your savings, and find the lender product that provides the best net outcome — not just the lowest headline rate.
Penalty calculation
Brokers know exactly how each lender calculates penalties — and can identify lower-penalty alternatives.
Rate shopping
30+ lenders compete for your refinance. Brokers find rates not available to the public.
Equity strategy
A broker advises on the most tax-efficient and cost-effective way to access your equity.
No cost to you
The new lender pays the broker on funded mortgages. Your consultation is free.